Investors often overlook SEC filings, and it is the job of the 10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking for financial statement ‘soft spots,'(depreciation policies, warranty reserves, and restructuring charges, etc.)that may materially impact Quality of Earnings.

Sunday, May 04, 2008

Trading Alerts: Monday, May 5, 2008

Insurance-focused conglomerate Berkshire Hathaway (BRK.A-$133,600) said Friday that its first-quarter profit slumped 64% compared with the same period a year earlier, hurt by $1.6 billion of pretax losses tied to derivatives contracts and softer underwriting income.

The Boeing Company (BA-$85.69) denied a media report from German daily Die Welt on Saturday it had informed customers of another delay on its new '787' Dreamliner model.

Cablevision Systems Corp (CVC-$23.14)made a $650 million bid for Tribune Co's Newsday newspaper, topping rival offers from media titans Rupert Murdoch and Mortimer Zuckerman, a source briefed on the matter said on Friday.

The share price of Cimarex Energy Co (XEC-$62.06) is up about 50% in the last three months, running higher with NYMEX oil and gas prices. Brokerage analysts have repeatedly raised their EPS forecasts, too, pushing the first-quarter consensus earnings estimate to $1.62 per share, up from $1.09 a share ninety days ago. Analyst Jeffrey W Robertson of Lehman Brothers recently raised his target price from $59 to $70 a share. The energy company is scheduled to report on Tuesday, May 6, before the start of trading.

Shares of Cirrus Logic Inc (CRUS-$5.85) plunged 21.3% Friday after the chip maker reported it swung to a fourth-quarter loss and guided first-quarter revenue below analyst estimates. However, in a research note, Zacks Equity Research is calling the company a logical buy, with a 12-month target price of $8 a share.

Countrywide Financial Corp.'s (CFC-$5.98)credit rating was cut to junk on Friday by Standard & Poor's rating, after a regulatory filing called into question whether Bank of America (BAC-$39.79) would repay the troubled lender's outstanding debt after their planned merger.

Wall Street is wondering what executives from Walt Disney Co (DIS-$33.49) will say Tuesday when the entertainment giant discloses how well attendance is holding up at its theme parks in the face of a possible recession. Analysts polled by FactSet Research are forecasting profits to come in at 51 cents a share on sales of $8.51 billion, compared with the 43 cents a share on sales of $8.07 billion posted a year ago.

Jim Cramer told his "Mad Money" television audience on Friday evening that Dover Corp (DOV-$50.63) is a great manufacturing company with new innovative technologies, such as a trash compactor fueled by solar power and biodegradable fluids and refrigeration units for grocery stores that are energy efficient. The maker of industrial equipment and parts trades at 12.6 times earnings and has a 15% growth rate.

Fannie Mae (FNM-$29.50) is expected to report first-quarter earnings before the opening bell on Tuesday. Wall Street analysts suspect the mortgage-finance giant will swing to a loss of 81 cents, compared with a profit of 85 cents a share in the year-ago period, as the U.S. housing market remains weak. Weighing on investors’ minds, however, is the prospect of Congress passing legislation further strengthening oversight over loan portfolio (including an increase in minimum capital requirements of the home lender).

If shares in General Dynamics Corp (GD-$90.69) drop in price this week on the expected announcement of a new CEO, "snap 'em up," said columnist Neil A. Martin in a Barron’s online story Saturday. The departing chief’s legacy is built to last, which is why some analysts think the stock price could hit $100 in about a year.

Hewitt Associates, Inc (HEW-$41.90) reports its fiscal second-quarter earnings before the market opens for trading on Monday. The global provider of human resource benefits is expected to post earnings of 38 cents a share, according to analysts surveyed by FactSet Research. As earnings are expected to remain under pressure from upfront business development costs and higher compensation expense, Zacks Equity Research continues to believe the stock is overvalued.

Standard & Poor's Ratings Services said late Friday it placed H&R Block's (HRB-$22.55) ratings, including its BBB- long-term counterparty credit rating, on CreditWatch with positive implications. The CreditWatch listing is based on the momentum H&R Block has achieved by successfully exiting the subprime mortgage business.

The growth strategy of Marvel Entertainment Inc (MVL-$30.25) is to leverage the brand-name recognition of its proprietary library of more than 5,000 characters, including Spider-Man, The Incredible Hulk, and The Fantastic Four, by licensing, publishing, toys and film production —either through third party and/or in-house development deals.

The company is expected to report first-quarter earnings of 44 cents a share on sales of $111.65 million on Monday, as compared with share-net of 54 cents on revenue of $151.40 million in the year-ago period. Financial guidance previously posited a Y/Y EPS and revenue shortfall because of the timed releases of two self-produced films ["Iron Man" and "The Incredible Hulk" are not in theatres until May 2 and June 13, 2008, respectively], film production cost over-runs, timing of receipt and payments from two feature films [distributors are reimbursed their associated costs prior to Marvel], and delayed results from subsequent DVD sales.

In our view, investors ought take caution, for 1H:08 movie trends are mixed, with higher ticket prices offset by lower attendance. The company reports before the bell on Monday, but investors will be more interested in box office receipts from this weekend’s release of "Iron Man"—its first in-house production.

Analysts surveyed by Thomson Financial call for McKesson Corp (MCK-$54.30) to post fourth-quarter earnings of $1 a share on sales of 26.83B, on average. The traditionally strong 4Q should get a boost from strong growth in Technology Solutions (product mix weighted to high-margin IT solutions) at the medical/surgical wholesaler & health-care IT solutions giant, offset by s slight dip in Y/Y Distribution Solutions (lower profit on generics) operating income.

Microsoft Corp (MSFT-$29.24) CEO Steve Ballmer said Saturday the software giant is dropping its three-month-old bid to buy Yahoo! Inc (YHOO-$28.67) as the two sides remained at least $5 billion apart on price. Now that Microsoft has walked away after offering $33, where does the Yahoo! stock price go? Doug McIntyre, posting on BloggingStocks, reasons down to $22 a share.

Spearheaded by credit card franchisors Mastercard Inc (MA-$285.04) and Visa Inc (V-$82.75), the banking industry failed to blunt a Federal Reserve proposal on Friday to initiate new credit card reforms, such as halting the common practice of raising interest rates on a balance when a cardholder fails to make payments on an unrelated bill and banning a practice known as double-cycle billing (when lenders reach back to prior billing cycles when calculating the amount of interest charges in the current cycle).

Riverpoint Capital Management in Cincinnati, which manages about $1 billion in assets, recently added NVIDIA Corp (NVDA-$22.52) to its holdings. "It's a very cheap valuation," said Kirk Koppenhoefer, an analyst at the investment firm, pointing out that the graphics chip maker trades at 13 times this year's estimated profit, about one-third its average price-earnings ratio of 36 over the past five years and below Intel's 18 multiple of EPS.

Pilgrims Pride Corp (PPC-$24.10) will hold a conference call on Monday, May 5 at 11:00 am to discuss the second-quarter earnings for 2008. Analysts polled by Thomson Financial, on average, expect the vertically integrated poultry producer to show a loss of 81 cents per share, as margins continue to be pressured by higher grain prices. Opining on the adverse affect of higher feed costs, Credit Suisse analyst, Robert Moscow, recently raised Pilgrims Pride to "Outperform" from "Neutral," proclaiming 2009 “the year of high protein prices.”

Analysts polled by Thomson Financial expect Post Properties Inc (PPS-$37.54) on Tuesday morning to report EPS of $0.46 on revenue of $76.06 million, on average. Share-net consensus for the apartment landlord was slashed by one-cent in the last sixty-days, reflecting an increase in financing costs, limited leverage in ability to charge higher rents due to higher unemployment and the slowing economy. On its earnings call, management will likely remain reticent about why they turned down several bidders looking to acquire the REIT at significant premiums to its current value.

Options traders are playing Wal-Mart Stores Inc (WMT-$57.50) close to the current stock price of about $58 a share, buying May 60 calls. An expected catalyst is a sales windfall driven by consumers cashing and spending their rebate checks on deeply discounted necessities lining the aisles of the big box-retailer.

Editor David J. Phillips holds a financial interest in Bristol-Myers Squibb Co stock. The 10Q Detective has a Full Disclosure Policy.

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About Me

Prior to founding the 10Q Detective, I held equity analyst positions with three brokerage firms and published the investment newsletter e-Growth Profit Letter - dedicated to uncovering companies with innovative, proprietary technologies in a range of industries. My work has been published in The Dick Davis Digest, The Bull & Bear Financial Report, BusinessWeek, CBS Interactive, Forbes, Kiplingers Personal Finance, MSN Money, TheStreet.com, 24/7 Wall Street, The Wall St. Journal, The International Herald Tribune, and Investors Business Daily.
The 10Q Detective is recommended as a 'Must-Read' money blog in Kiplingers (Oct. 2006 & May 2008), Washington Post (May 2009); a 'Best of Financial Blog' by BusinessWeek (Feb. 2007 & April 2008),a 'Smart Stop' by The Journal of Accountancy (March 2008); 'Top 25' by Time magazine, a 'Top 50 Money Blog' by CurrencyTrading.net (April 2008); and, a 2011 LexisNexis Business Law Blog Nominee.